Many of our self-funded retiree clients have been asking whether the ALP’s franking credit policy will have a negative impact on their retirement savings. The answer to this is that if you have been receiving a refund of franking credits, either from your personal tax return or from your SMSF return, then the ALP’s franking credit refund policy is likely to have a negative impact on your retirement savings.
If you are not already aware, franking credit refunds will continue to flow to members of large retail superannuation funds and industry funds.
As your accountants and financial advisers, we wish to reassure you that we have developed strategies that will minimise this negative impact. These include:
1. Reduce Australian Shares and Invest more into Property and Overseas Shares
If the franking credits from Australian shares are not being fully refunded, investors may be better off reducing Australian share dividends and franking credits in exchange for property income or dividends and capital gains from overseas shares. This will require an analysis of the portfolio and recommendations in respect of the asset allocation and investment selection to achieve the desired outcome.
2. Establish a Personal Superannuation Account
As stated above the proposed franking credit changes will not impact retail funds and industry funds. Members with SMSFs may consider transferring all or part of their portfolio to a retail or industry fund to the extent that their franking credit refund is maintained in that other fund. This will require an analysis of the portfolio to confirm what investments need to be sold and then rolled over as well as asset allocation and investment selection in the new fund.
3. Consolidating all Superannuation Accounts
Some retirees may have two superannuation accounts, such as an SMSF in pension phase and a retail fund or industry superannuation fund in accumulation phase.
With the proposed franking credit changes, the SMSF will lose the excess franking credit and the industry superannuation account will continue to pay tax on its earnings. However, if the industry super accumulation balance is transferred to the SMSF, the SMSF will be able to utilise the excess franking credits to offset against the earnings from the accumulation balance.
4. Introducing New Accumulation Member(s)
SMSFs are allowed to have a maximum of four members, so if there are only two pension members, they may wish to introduce one or two new members, say their adult children, who are working and receiving employer contributions.
The fund can apply the non-refundable excess franking credits against the concessional contribution tax and also the tax on earnings by the accumulation members.
In the event that there is a change of government we will be providing seminars in relation to the proposed law changes and confirming what strategy will be best to protect you from losses that may arise from this change in policy.
In the meantime, please contact our superannuation and wealth management team on (03) 9810 0700 or advice@bgprivateclients.com.au if you have any questions.
